Does Fundamental Dishonesty need to be “distinctly” pleaded?

Following the introduction of Qualified One Way Costs Shifting (QOCS) a successful Defendant may enforce a costs order beyond any sums recovered “with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest” (CPR 44.16).

Several cases have considered the meaning of “fundamental dishonesty”, however none have addressed the procedural questions of whether an allegation of fundamental dishonesty must be distinctly pleaded and put to a Claimant. The Court of Appeal considered these 2 questions in Howlett.

The appeal arose out of a fast track trial concerning a road traffic accident. The Howletts brought claims for personal injury and consequential loss. They alleged they were passengers in Davies’ vehicle when she reversed into a parked car.

The Defence of Ageas alleged any accident that the Howletts could prove to have occurred was of such low velocity that it was unlikely any injury could have arisen. Credibility was expressly stated to be in issue and paragraph 6 of the Defence contained 12 sub-sections raising concerns about the veracity of the Claimants’ case. Although fundamental dishonesty, let alone fraud, were not expressly and positively pleaded, the Defence contended at paragraph 2 that if the court found any elements of fraud to the claim, Ageas would seek to reduce any damages payable to the Howletts to nil and that it would also seek an appropriate costs order.

Following oral evidence and written closing submissions the District Judge dismissed the claim and found both Howletts had been dishonest and that that dishonesty was fundamental. He accordingly ordered that a costs order could be enforced against them to its full extent.

The Howletts appealed the decision to HHJ Blair QC at Swindon County Court and it was dismissed.

An appeal of that decision was made to the Court of Appeal and heard on 11 October 2017. The Howletts appealed on the basis that dishonesty was not alleged by Ageas in their Defence, nor was it put to them in cross-examination, and as such it was not open to the District Judge to either make findings of dishonesty in his substantial judgment or to conclude the claim was fundamentally dishonest.

Newey LJ giving the judgment of the Court dismissed the Howletts’ appeal. The Court held that the fact an opposing party had not alleged fundamental dishonesty in their pleadings did not bar a judge from making such a finding. Ageas’ Defence had followed the guidance in Kearsey v Klarfield, and while not alleging fraud, had set out the facts from which they would ask the court to infer the accident did not occur as alleged. The key question was whether a party had been given adequate warning (including adequate exploration during oral evidence), and a proper opportunity to deal with the possibility of such an inference being drawn by the judge. Ageas’ pleadings gave the Howletts sufficient notice of the points that would be raised against them and the possibility that the judge would arrive at the decision he ultimately did.

The Court also dismissed the argument that the judge could not make a finding of fundamental dishonesty as allegations of dishonesty were not put to the Howletts in cross-examination. There was no transcript of the hearing. It was accepted by the 2nd Defendant’s Counsel that he did not use the words “fraud” or “dishonest” in cross-examination, but it was submitted that it was clear that he was putting in issue the Howletts’ honesty and not just their credibility. The Court relied on the District Judge’s assessment of the oral evidence and subsequent judgment in which he held that the Howletts had been cross-examined to the effect that there had been dishonesty. The District Judge also noted he had made clear, “from the get go”, he would be considering matters of dishonesty and exaggeration and the Howletts had every opportunity to defend themselves. The Court made 2 points in conclusion on this point:

Where a witness’ honesty was to be challenged then it is best if this is expressly put to the witness; however, what ultimately matters is if the witness has had fair notice of a challenge of their honesty and opportunity to deal with it. It was noted there may be in a particular context (as in this case) that the cross-examination does not require the words “dishonest” or “lying” to be used, but ultimately it will be for the trial judge to decide.

The fact a party has not alleged fraud in pleadings does not preclude that from being suggested to a witness in cross-examination.